A first-time buyer has every reason to be discouraged these days. Home prices have risen at a rapid pace in the past year, pricing some would-be buyers out of the market. A limited supply of homes for sale has created fierce competition among buyers.
Buying a home for $300,000 in the Washington area
Although houses regularly sell for north of $1 million in the D.C. area, buyers on a budget can find something in their price range
By Kathy Orton
January 27, 2022 at 7:15 a.m. EST
“I always try and emphasize that if you are in a place where both financially and mentally you’re ready to purchase a home, don’t expect the market to change so dramatically that you are suddenly going to find yourself in a completely different price bracket,” O’Neil said. “What [$300,000] is going to buy you now is not what it’s going to buy you in five, seven years from now. So if that’s going to be your budget and you’re not able to save more each month because you are continuing to rent and rents continue to go up over time, then you are just going to be getting farther and farther away the longer you wait to start building equity in a property from realizing your larger property dream in the future.”
To begin with, mortgage rates are rising. The higher they go, the less a buyer can afford. And the market is not as dire as it may seem for first-time buyers. There’s less competition for condos at the moment.
“Right now, it’s actually a great time to be a first-time condo buyer because the competition is so, so, so much less,” he said. “We’re seeing a lot of condominiums sit on the market for a considerable amount of time.”
Condos are often a starter home for buyers because of their affordability, even factoring in monthly condo fees. A budget of $300,000 often — but not always — means a condo in the Washington area.
“$300,000 is a very realistic budget, but it’s also where most of the time you are probably going to be taking a little bit of a hit to what you are probably used to,” he said.
Some buyers have a difficult time wrapping their heads around what $300,000 will buy them, particularly if they have been living in one of the many luxury apartment buildings in Washington. A renter accustomed to a fitness center, roof deck and dog-washing station in their building may struggle to settle for an older building that has none of these amenities.
“I think it’s important when we are talking about expectation setting to let buyers know that the idea that you are looking at what $300,000 can buy you and you are quote-unquote disappointed, that is not a unique experience,” O’Neil said. “It’s okay to feel that way. I don’t know if I’ve ever worked with a buyer … where their expectations meet their budget.”
Homes for $300,000
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A look at what you can buy at this price point around the D.C. area and across the country.
Keeping in mind your first home isn’t necessarily your forever home, and there are advantages to buying rather than renting.
“Building equity is building a bank account for yourself,” he said. “You’re going to be able to build that into your tax planning, you’re going to be able to build that into your savings plan, and over time, you’ll be able to access those funds either through the sale of the home or even through doing something like a home equity line of credit. There’s a lot of advantages when you are not paying somebody else’s mortgage.”
However, that scenario falls apart if you pay too much for your first home.
“As long as you’re not overpaying, over time, you can realize the gain either through selling the home at what you paid for it plus closing costs and getting all your money out of it or maybe a little bit more, maybe you’ve built some additional equity,” he said. “You can then put that toward that larger down payment to make a more manageable monthly payment on a bigger home.”
Before he takes buyers out to view homes, O’Neil asks them where they are on a scale of 1 to 10 when it comes to being ready to make a purchase, with 10 being preapproved for a mortgage, money in the bank for a down payment and the ability to write an offer that day.
“It always breaks my heart when I take a buyer out who says that they are ready or says ‘I can get this done really, really quick,’ ” O’Neil said. “And then they find a home that they fall in love with and they lose out on it just because it takes even 24 hours to get stuff done.”
O’Neil is a proponent of using local lenders such as First Saving Mortgage in McLean, Va., and First Home Mortgage with branches in the District, Maryland and Virginia rather than the big banks for mortgages.
“I found personally that the local lenders — not only do they know the market so much better and their appraisers do such a better job at understanding the values of properties and some of the intrinsic things about them that a huge big bank that’s just contracting out their appraisals may not capture — but they’re local businesses and so they are going to care about [the buyer],” he said.
To give first-time home buyers a sense of the costs involved in owning a $300,000 home, we asked Realtor.com to calculate how much an owner would pay monthly. Of course, the amount of debt a buyer has (such as student or car loans) will alter these calculations. Condo fees and maintenance costs need to be factored in as well.
Because many first-time buyers struggle to scrape together a down payment, Realtor.com calculated the costs of a $300,000 home based on a 3 percent down payment ($9,000). Federal Housing Administration loans require 3.5 percent down payments, but Fannie Mae and Freddie Mac each have home loan products that require just 3 percent down. However, loans with less than a 20 percent down payment often require mortgage insurance, which raises monthly costs.
Based on a 3 percent down payment and a 30-year fixed-rate mortgage of 3.25 percent, the monthly mortgage payment would be around $1,937 including mortgage insurance, taxes and home insurance (using average national tax and insurance rates). A buyer would need to earn at least $77,491 to afford a $300,000 home and remain within the general guidelines of spending no more than 30 percent of your gross income on housing.
O’Neil said the one piece of advice he would give first-time buyers is to start early. He recommends beginning at least four to six months before you plan to purchase by going to open houses and talking with real estate agents.
“If you don’t start getting yourself ready to make a purchase until you have to — you have 10 days left on your lease — you are going to be enormously overwhelmed and you’re going to feel like you missed a lot of opportunities,” he said. “Whereas if you give yourself four to six months … you are going to be so much more prepared logistically and emotionally for this new journey you are embarking on.”
To see what $300,000 buys, click on the link below.
